If a trustee sells a trust asset, can you reverse that sale? The initial answer is no. Trustees are given the power, usually under the trust document but also under California trust law, to sell trust property at their choosing. And since Trustees have the power to sell trust assets, there is no way to reverse that sale and recover the sold asset back to the trust.
Exceptions to Trustee Selling Assets
There are a few exceptions, however. For instances, if a Trustee breaches their fiduciary duties by stealing from the trust, or attempting to sell an asset to themselves (or to an entity they control or are colluding with), then you may be able to recover the asset. Under Probate Code section 16420(a)(6), the court has the power to set aside actions of the Trustee. This includes setting aside a sale is the sale was not legitimate. Unfortunately, if the Trustee sells an asset to a bona-fide purchaser for fair market value (meaning a person who has no idea the Trustee is doing something wrong), then the sale cannot be reversed.
Further, if a Trust gives a beneficiary a specific gift, meaning a gift of a specific house or other type of identifiable property (other than mere money), then the beneficiary must receive that item. Under Probate Code section 21133, any beneficiary set to receive a specific gift has a right to receive that gift. In other words, a Trustee cannot sell a house that is specifically given to a named beneficiary. The specific gift beneficiary has a right to receive the title to that house. The only exception being if the house must be sold to pay the debts of a decedent or of a trust. If the house were the only asset and there are other bills that must be paid, then the Trustee can sell the house, pay the debts, and distribute whatever remains to the specific gift beneficiary.
The Right of The Trustee
Absent a breach of trust, or a specific gift, the Trustee generally has to right to sell Trust assets and the beneficiaries will not be able to recover the asset. Of course, this assumes that the Trustee is abiding by their fiduciary duties under the California Probate Code. For example, Trustees have a duty to make Trust assets productive—meaning to either produce income or appreciate in value. Selling a rental property that produces income and buying a personal residence that the Trustee begins living in rent-free would be a breach of Trust by the Trustee. But even then, the beneficiaries will not be able to recover the rental real estate. Instead, the beneficiaries will have a claim against the Trustee for damages that were incurred by losing all the income and real property appreciation.
Rights of Beneficiaries
Beneficiaries are not completely helpless, however, when it comes to the sale of assets. A beneficiary has the right to seek court intervention to stop a Trustee from selling any asset. Of course, court intervention takes time and money, which the beneficiary must pay in order to stop the sale. There are no guarantees that the court will stop a sale, but that would be the beneficiary’s primary tool to prevent the sale of a Trust asset.
It is never easy being a beneficiary when you have a bad Trustee. Be forewarned, your powers to stop sales or recover assets that are sold can be severely limited.